India and the IMF
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"I am delighted to have had the opportunity to visit India these past few days. I had the privilege of meeting with Prime Minister Manmohan Singh and President of the Congress Party, Mrs. Sonia Gandhi as well as Finance Minister P. Chidambaram, Minister of Commerce and Industry Kamal Nath, and Deputy Chairman of the Planning Commission, Mr. Montek Singh Ahluwalia. In Mumbai, I met with Governor Y.V. Reddy and his colleagues at the Reserve Bank of India as well as a wide range of business, banking, and academic leaders.
"The visit has given me the opportunity to witness first hand the remarkable dynamism of the Indian economy. My discussions with political and business leaders have also given me a deeper understanding of both the challenges and opportunities facing India as the country seeks to reduce poverty, increase employment, and build lasting prosperity. While growth in India has been robust-reaching nearly 7 percent in this fiscal year-there is keen awareness of the need to continue to strengthen the India's fiscal position, open the economy more fully to the world, and remove remaining domestic constraints on growth.
"I welcomed the opportunity to hear from the authorities their intention to increase their provision of economic infrastructure and basic social services, and to do so within a fiscally responsible framework. The tax reform that has begun in earnest with the 2005/06 budget will play a key role here, but difficult choices remain ahead as the authorities seek to create fiscal space for their high priority spending. The private sector can also play an important role in developing India's infrastructure, and I welcome the emphasis placed on the much-needed improvements in the regulatory framework and overall business climate.
"Rapid employment creation and poverty reduction in India require reforms to allow manufacturing to reach its full potential and to improve agriculture productivity. In this regard, I am encouraged by the authorities' plans to reduce trade tariffs and corporate tax rates, and scale back constraints on foreign direct investment. I emphasized that, in the current positive economic environment in India, such reforms would have a particularly large payoff, and encouraged the authorities to accelerate and broaden the reform process.
"The financial sector in India has made dramatic strides in recent years, with bank health improving, and lending to the private sector on the rise. The Reserve Bank of India is to be commended for the steady hand with which it has guided this progress. More remains to be done to build a strong and competitive financial sector in India. In this regard, I was pleased to learn of the plans of the authorities to provide increased autonomy to public sector banks and strengthen further banking sector oversight.
"The RBI has skillfully conducted its monetary policy, and has managed to contain inflation at acceptable levels despite the rapid rise in world oil prices last year. Governor Reddy and I fully share the view that, with domestic demand still strong and oil prices volatile, continued close monitoring of price developments is essential to ensure that new inflation pressures do not emerge.
"My dialogue with Indian leaders has convinced me that India will continue to thrive and, with the right policies, fulfill its goals of improving dramatically the living standards of all its citizens."
IMF EXTERNAL RELATIONS DEPARTMENT